Crescent Purchasing Consortium explains the fixed price cost model of procurement consultancies, its advantages and disadvantages, and the questions to ask prospective consultants
We are going to explore the fixed price cost model which is the final model to be examined in this series. Once you have read this article you will be able to determine which cost model is the best solution for your institution. This article offers unbiased opinion and has been written by a professional procurement consultant who is employed by a registered charity which operates a Public Sector Buying Organisation (PSBO).
The fixed price cost model is designed to enable you to fully understand the total cost of the service before any work commences. This model is available in the education sector and is usually offered as a fixed project cost. Should a procurement consultant be unable or unwilling to provide a fixed price they may offer a fixed day rate. The two options are completely different and buyers should be aware of the differences:
A fixed cost for the delivery of the project is agreed between buyer and consultant. Should a project take longer to complete than anticipated the consultant cannot request extra costs to cover the extra time. The only exception to this would be where the buyer has changed the scope of the work during the project, it would be fair for the consultant to be paid for any extra work resulting from the change.
Fixed day rate
A fixed day rate is a capped fee for a day’s work. A tender process will require several consultancy days to be invested into the project, some of which may be full or part days. The number of days is not limited for the completion of the project. It is important to agree your aims and objectives for the project with the procurement consultant. This will ensure that the project is designed around achieving these and time is not invested in outcomes that are not important to you.
Evidencing a saving
Understanding what the benchmark is and evidencing a saving is as important when using a fixed price model as any other. Understanding the benchmark will enable you to calculate or follow the consultant’s calculation of what saving has been achieved or is forecast as an outcome from the project.
What happens if a saving is not achieved? A consultant offering this model will require a payment for their expertise and time even if a saving cannot be evidenced. We have discussed the ‘no win, no fee’ cost models in a previous article and the fact that a win will be rewarded with a substantial fee based on a fixed percentage of savings. Procurement consultants that use the fixed price cost model will receive a lower fee but the payment will not be subject to generated savings, it will be as a result of completing the project.
Project aims and objectives
You may wish to prioritise one or more project aims and objectives dependant on your individual circumstances. Three examples are: 1. Save money – to reduce cost it is sometimes necessary to reduce the quality of the goods or service.
2. Comply with Public Contract Regulations 2015 (PCR 2015) – this applies to public sector organisations and each organisation has a duty to ensure they undertake procurement exercises that adhere to the principals of the regulations.
3. Improve efficiencies – periodically testing the marketplace is a good way of identifying opportunities to make efficiencies.
How is the fee paid?
The model usually requires the fee to be paid directly by the buyer but in some cases a consultant may offer the option of the winning supplier paying their fee. It is important to insist on total transparency around the value of the payment and it should be no more expensive than if the buyer were to pay. By authorising the supplier to pay, the fee will be included within their tender submission and for transparency should be highlighted as an additional cost to their service by adding an extra line into their cost submission.
Advantages and disadvantages
The advantages to the buyer when using the model include: you only pay a fixed price for the work, you have knowledge of the total fee paid to the supplier and you can budget for the work. It also avoids the situation of disagreements with suppliers about consultancy costs once the project has been completed.
A disadvantage is that the price is fixed regardless of what savings or benefits are achieved.
Questions to ask
Is the fee negotiable? It is the buyer’s responsibility when appointing a procurement consultant to negotiate the price in the same way as you would expect the consultant to negotiate the best deal for the buyer.
Additional to the income you are receiving from the buyer, are you receiving any other income by completing this assignment?
Best practice would be for the consultant to put in writing the income they are receiving for the assignment and provide a record of the suppliers who have received business from the projects managed by the consultant. This would provide transparency of the consultant’s income and the supplier(s) the consultant has been awarding business to. Be wary of a too regular occurrence of a consultant awarding to the same supplier.
Who are the main providers of the goods/service to education?
Network in the education sector to seek guidance on this question so that you have something to benchmark the consultant’s answer against. PSBO deals will have vetted suppliers allocated and the PSBO will provide advice.
What steps will you take to engage with the marketplace to ensure the number of responses to the tender is acceptable? Pro-active consultants will undertake essential pre-market engagement to prepare the marketplace for your tender opportunity. Through this engagement your consultant will advise on the best route to market that will ensure the best response.
Can you provide references of five similar organisations that you have worked with under this model in the past 12 months? Contacting referees will enable you to understand the consultant’s suitability for working with you and your organisation. It will also enable you to ask if past customers were happy with the outcome of the procurement process and whether the fixed price model was considered a fair and transparent model for them.
It should be noted that any supplier will not openly offer a reference site for a project that didn’t go well so use your network groups and contacts to gain referrals for consultants.